IG/XO Credit
Starting to see some scaled hedge funds and family offices focus on IG/XO credits. How is consistent alpha typically generated with those strategies?
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Work at an IG benchmarked fund (and keen to hear what others say) too.
For us; (i) relative value (IG has been fairly vol recently and you can get decent alpha in 30Y+ structures with a 10-20bps move); (ii) curve compression (say 10y/30y at 40bps, and you think it should be 20bps); (iii) XCCY (USD cheaper than EUR etc.); (iv) duration overlays (i.e. you're bullish on 3y yield vs 10y yields so you hedge less than 100%); (v) can also play in CDS so the usual L/S stuff, (vi) index overlays (ITRX / CDX)
Presume similar at HF - if you're market neutral i presume you'll L/S corp bonds to get spread compression etc.
Know that the prevailing assumption is HY is more interesting, and while not disputing that, IG isn't just about plotting curves! (although there are stupid amounts of slow money that just put $ into a rating bucket and call it a day; and I wouldn't be color-blind given the amount of time you still spend on curves....)
Scott Goodwin (co-founder of Diameter Capital) was recently on the Invest Like The Best podcast, he gives some color on L/S credit investing (Diameter invests across the quality spectrum, from IG to distressed)
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